By: Calley121

Calley121 — Thu, 01 Apr 2010 14:14:13 +0000

Although the Examiner’s Report expressly declined to take a position on the issue, it seems quite unlikely that Lehman’s repo 105 program in fact met the standards required by FAS 140 for off-balance sheet treatment. In particular, LBIE (Lehman’s UK entity) apparently repo’d two different “buckets” of securities in the UK: (i) securities that were already owned LBIE, and (ii) securities transferred to LBIE from U.S. Lehman entities. With respect to the second category, the means of transfer was a repo between the U.S. Lehman entity and LBIE. That repo between the U.S. Lehman entity and LBIE, however, would not be characterized as a true sale for U.S. bankruptcy law purposes; indeed, the very impetus for the repo 105 structure was Lehman’s inability to obtain a true sale opinion from a U.S. law firm for repos transacted by U.S. Lehman entities. And there lies the problem: the transfer of securities from U.S. Lehman entities to LBIE, and the characterization of such transfer for U.S. bankruptcy law purposes, were not addressed in the Linklaters UK legal opinion upon which Lehman depended for FAS 140 purposes (and one might conjecture that Lehman probably never informed Linklaters of the specific providence of the securities). Instead, the Linklaters UK legal opinion simply included an express assumption that there were no provisions of foreign law that would have any effect on the opinion. Accordingly, it is hard to imagine that Linklaters would still have been able to provide its UK legal opinion if there had been an explicit statement of the fact that certain of the securities that were repo’d in the UK by LBIE were first acquired by LBIE from U.S. Lehman entities in repo transactions that did not constitute true sales for U.S. bankruptcy law purposes.

By: REITWrecks

REITWrecks — Tue, 23 Mar 2010 05:45:40 +0000

Hi Patrick – I have to disagree. Clearly, FIN 46 was meant to end this sort of thing once and for all. LEH was playing by the letter of the law, not the spirit. This is the kind of thing that convinced me to abandon my career as a banker.

By: Patrick

Patrick — Tue, 16 Mar 2010 02:26:07 +0000

It’s hard to fault Lehman for taking advantage of SFAS 140 loopholes. True, the disclosure in the MD&A was limited and failed to disclose that a material amount of liquidity was being generated via noneconomic repurchase arrangements. Still, the market had every opportunity to punish Lehman’s stock price for its opaque and complex financials and chose to remain blissfully ignorant. I really don’t fault Lehman too much for the Repo 105 transactions.

Comments on: Lehman’s Balance Sheet Games: REPO 105 and its $3 Billion Mini-Me

By: Calley121

By: REITWrecks

By: Patrick